Netflix (NASDAQ:NFLX) has released its first iPhone OS app through which users can access their Netflix accounts and stream content directly to their iPads. We believe that streaming services through connected devices like the iPad will help Netflix to widen its customer base, as well as create an additional media platform apart from the traditional TV and computer.
We believe that connected devices like the iPad, coupled with an enriched online movie catalog, will help the company increase its number of online videos streamed and reduce the number of DVDs mailed, thus reducing DVD shipment costs for the company. A long-term reduction in costs can provide a boost to Netflix’s stock.
iPad Can Be A Powerful Movie Delivery Platform For Netflix
Netflix’s iPad App can be accessed for free with a subscription to Netflix’s $8.99 monthly package or more premium Netflix packages. By expanding its streaming service to media platforms like TV, computer, gaming console and iPad, Netlflix is focusing on giving more options to its customers and thereby making movie viewing convenient.
Although we don’t expect a near term boost for Netflix from the iPad, we do see an on-going trend of increasingly feature-rich personalized electronic devices that will consume a larger share of time spent by Netflix customers. Netflix needs to effectively capture this segment of consumer devices to fuel its fast growth.
Richer Online Catalog Needed To Effectively Capture Connected Device Base
Netflix’s streaming and utility on connected devices like the iPad is only as good as its online catalog. Though Netflix is actively working with content providers to enrich its online video content, it currently has fewer than 20,000 titles online compared to a collection of more than 100,000 titles in DVDs. In addition, Netflix needs to add newer titles to its online catalog.
Netflix has the potential to capture the online streaming market if it’s able to improve the quality of its online content.
Higher Connected Device Base Will Mean Fewer DVDs Rented and More Videos Streamed
A wider connected device base will help Netflix reduce costs as more customers will shift to online viewing instead of ordering DVDs. This will result in a reduction in the number of DVDs mailed per subscriber and an increase in the number of videos streamed per subscriber for Netflix.
More online streaming is likely to bring down DVD shipment costs. We estimate that Netflix’s DVD shipment cost for one movie is 10x more than its online delivery cost.
You can modify the forecasts above to see how reduction in DVD shipments and increase in online movies viewed can impact Netflix’s stock price.
For additional forecasts and analysis, here is our complete model for Netflix’s stock.
